Dr. Frank Wolf: Question number seven. I’m currently spending $3,000 per month on my marketing. What is an acceptable return on my investment?

Daniel Bobrow: The short answer is that, the return on any reasonable level of consistent investment, is at least 300%.  But we need to be very clear with our definitions, as well as when we are measuring ROI – return on investment.

ROI is simply a ratio, with return being the numerator and investment, or cost, being the denominator. But when you measure is just as important as what you measure.

For example, if you measure ROI the day after you pay for your direct marketing program, and before any mailings have been sent, I can guarantee you that your ROI at that time will be zero. So that’s pretty important.  Also, important is how you measure ROI. I think we touched on this briefly before, but we have our clients undergo a short and rather painless exercise to help them calculate what we call the Practice’s Average Annual Patient Profit, which is a conservative and reliable measure of the value of a new patient. What it does not measure is the long-term value to the practice of a patient, owing to their recall and referral, right?

Dr. Frank Wolf: Absolutely. I’m glad you made that distinction because there is a difference between the value of a new patient versus the lifetime value of a patient.

Daniel Bobrow: Absolutely. Sometimes I’ll talk to people who, three months into their program say, “You know, I spent this with you and I’m only breaking even.” I say, “Well, I didn’t know you were closing your practice tomorrow!” The point here, of course, is that every new patient represents a series of new and future cash flows. If the new patient is happy with you – and you’re all high quality practitioners who are committed to communicating and providing the best in care – why would these people not come in for and accept treatment, and refer their friends,  family and colleagues? Unless they move a really long distance, but even there, I don’t have to tell you that people stay loyal to a practice when they’re happy with it.

Dr. Frank Wolf: No question. And getting back to the value of a patient, I don’t think there are many dentists who actually know their average patient value.

Daniel Bobrow: That’s unfortunately the case.

Dr. Frank Wolf: Not only from a new patient standpoint, but lifetime value. For me, the lifetime value of a patient when I was practicing was $20,000. So I could easily justify investing a lot of money just to get one new patient because I knew that patient was worth $20,000. I also knew what the value of a new patient was over a 12 month period.

Daniel Bobrow: Right. Because you obviously need to be realistic with your cash. You can go broke building lifetime value. That’s obviously an important consideration, and one which we keep in mind as well.

Dr. Frank Wolf: What do you think? I know you mentioned 300%.

Daniel Bobrow: Under your scenario it can be close to infinity!

Dr. Frank Wolf: That’s my experience. What’s coincidental, the last mailing I did with you when I was in practice, I was putting out 10,000 pieces and I did that every month for 12 months, and that was costing me $3,000 per month. After that 12 month period, the amount of revenue that was generated just from new patients that was realized through that direct mail campaign provided me with a 300% return on my investment. But that was just in the first year. This was about seven years ago when we did this mailing. These patients that were generated, these new patients, they’re still in the practice.

Daniel Bobrow: Did they contribute to the selling price of the practice?

Dr. Frank Wolf: Oh, most definitely. They’re still in the practice, they’re still having their dentistry done, and they’re still referring new patients. So what was a 300% return after 12 months is just continuing to go up. Realistically, the return is a multiple of that because those patients will continue to be there until they move, die, or the practice no longer exists.

Daniel Bobrow: Let me make another point, too, about return on investment. Sometimes practitioners make the mistake of eliminating one tactic simply because it doesn’t have as high an ROI as another tactic.  It’s really important to understand that the practice should be happy to perform any and all tactics which are likely to demonstrate or have already demonstrated a positive ROI.  In fact, a tactic with a lower ROI might actually be more profitable. Let me just give you a quick example to see how.

Let’s say that your average annual patient profit is $1,000, just to keep it easy, and you’re considering two tactics.

Tactic A cost $5,000 and got you 25 patients. So the return on investment for that strategy would be 400%, which is $25,000 of value (25 patients times $1,000 per patient) minus the cost, divided by the cost ($5,000.) So again, that’s a 400% return on investment.

Tactic B costs you $10,000 and gets you 35 patients. So the benefit from Tactic B is $35,000, from which you subtract the cost, then divide by the cost of $10,000. The ROI from Tactic B is only 250%. But you made more money.  In this case, $20,000 for Tactic A and $25,000 from Tactic B.

The point is: don’t eliminate one strategy just because the ROI on one is higher than another (unless you’re convinced you’re going to get the patients from the less costly tactic anyway – and that’s rarely the case).

Your cash flow permitting, you need not, and should not, choose between A or B but if you had to, you’d be better off selecting the tactic with the lower ROI.

Dr. Frank Wolf: Right.

Daniel Bobrow: I know there was to be no math, but I couldn’t resist.

by Danny Bobrow

 

 
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